10. Shareholders’ Deficit

Common Stock

There is currently only one class of common stock. Each share of common stock is entitled to one vote. The authorized number of shares of common stock of the Company at December 31, 2018 was 500,000,000 shares with a par value per share of $0.001. Authorized shares that have been issued and fully paid amounted to 235,460,470 as of December 31, 2018.

Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock with a par value of $0.01 per share, with rights, preferences and limitations as may be decided from time-to-time by the Board of Directors.

New Series A

On December 6, 2018, TimefireVR Inc. filed a Certificate of Designation authorizing 100 shares of the Company’s preferred stock as the new Series A Preferred Stock (the “new Series A”) with a par value of $.01 per share. The new Series A provides the holder of the new Series A with a majority of the Company’s outstanding voting power. The Company intends to issue all outstanding shares of the new Series A to the Company’s Chief Executive Officer.

The new Series A is not convertible and does not have any preferential dividend or liquidation rights. Holders of the new Series A shall only be entitled to vote on the approval of an amendment to the company’s Articles of Incorporation and shall be entitled to a voting power equal to one vote more than the total combined voting power of the Company’s common stock and all other series or classes of the Company’s outstanding equity. The Company shall have the obligation to redeem all of the Series A for a total of $100 upon the Company’s filing with the Nevada Secretary of State of an amendment to the Company’s Articles of Incorporation effecting a reverse stock split or an increase in authorized capital of the Company’s common stock.

Series E

Effective January 3, 2018, the Board of Directors authorized the issuance of up to 305,000 shares of Series E Convertible Preferred Stock ("Series E"). Each share of Series E has a stated value of $1,000 and is convertible into shares of our common stock at a conversion price of $1.00 per share. The Series E does not have any price protection from future issuances of securities by the Company at a price below the conversion price then in effect.

Pursuant to an Exchange Agreement entered into effective January 3, 2018, we issued 303,714 shares of the Series E in exchange for the cancellation of the following securities:

• 133,333.69 shares of Series A Convertible Preferred Stock (extinguishing such series) - 133,334 Series E shares;
• 14,923.30 shares of Series A-1 Convertible Preferred Stock (extinguishing such series) – 44,770 Series E shares;
• 501.54 shares of Series C Convertible Preferred Stock (extinguishing such series) – 50,154 Series E shares;
• $650,000 of Senior Convertible Notes issued March 3, 2017 – 63,368 Series E shares;
• $63,158 of Senior Convertible Notes issued August 21, 2017 – 7,125 Series E shares; and
• Warrants to purchase 4,963,402 shares of our common stock – 4,963 Series E shares.

During the year ended December 31, 2018, holders of 181,524 shares of Series E converted them into 181,524,000 shares of our common stock. At December 31, 2018, there are 122,190 shares of Series E outstanding, which are convertible into an aggregate of 122,190,000 shares of our common stock.

Series C

In 2014, the Board approved the issuance of Series C Preferred Stock (“Series C”). Each share of Series C shall be convertible at the option of the holder at any time, into 10,000 shares of common stock. During the year ended December 31, 2017, holders of 113 shares of Series C converted them into 1,130,000 shares of our common stock. At December 31, 2017, there are 501.54 shares of Series C outstanding. Effective January 3, 2018, all Series C shares were cancelled in exchange for 50,154 Series E shares. On January 22, 2018, the Company filed a Certificate of Withdrawal of Certificate of Designation with the Nevada Secretary of State canceling this series of stock.

Series A-1

Effective August 24, 2016, the Board approved the issuance of Series A-1 Preferred Stock (“Series A-1”). Each share of Series A-1 shall be convertible at the option of the holder at any time, into 100 shares of common stock. During the year ended December 31, 2017, holders of 5447.39 shares of Series A-1 converted them into 544,739 shares of common stock. At December 31, 2017, there are 14,923 shares of Series A-1 outstanding. Effective January 3, 2018, all Series A-1 shares were cancelled in exchange for 44,770 Series E shares. On January 22, 2018, the Company filed a Certificate of Withdrawal of Certificate of Designation with the Nevada Secretary of State canceling this series of stock.

Series A

Effective September 13, 2016, the Company closed on the SPA and the Board approved the issuance of a newly designated Series A Convertible Preferred Stock (“Series A”). At December 31, 2017, there were 133,334 shares of Series A outstanding. Effective January 3, 2018, all Series A shares were cancelled in exchange for 133,334 Series E shares. On January 22, 2018, the Company filed a Certificate of Withdrawal of Certificate of Designation with the Nevada Secretary of State canceling this series of stock.

The Series A contained certain provisions that were outside the Company's control and which the Company believed caused the Series A to be classified as mezzanine equity.

Expanded detail for the Statement of Changes in Shareholders’ Equity preferred stock is as follows:

Warrants

The balance of warrants outstanding for purchase of the Company’s common stock as of December 31, 2018 and 2017 is as follows:

(1) On March 3, 2017, per the terms of an offering (see Note 6), the Company issued warrants at $.35 to purchase 2,500,003 shares of common stock. The warrants may not be exercised for six months after their effective date of March 3, 2017. The warrants have an expiration date of five years after the initial six months have passed. The original fair value of these warrants on the date of issuance was $377,525. On January 3, 2018, 2,166,669 of these warrants were cancelled in exchange for Series E shares. As of December 31, 2018, the fair value of the remaining warrants was $473, recorded as a derivative liability. The difference in value is recorded as a change in the fair value of derivative.

(2) On August 21, 2017, per the terms of an offering (see Note 6), the Company issued warrants at $.35 to purchase 210,526 shares of common stock. The warrants may not be exercised for six months after their effective date of August 21, 2017. The warrants have an expiration date of five years after the initial six months have passed. The original fair value of these warrants on the date of issuance was $7,516. On January 3, 2018, all of these warrants were cancelled in exchange for Series E shares.

(3) As discussed above, on January 3, 2018, 4,963,402 warrants to purchase shares of common stock were cancelled in exchange for 4,963 Series E shares.

(4) On March 6, 2018, pursuant to the 2018 Notes (see Note 6), the Company issued warrants at $.06 to purchase 35,087,720 shares of common stock. The warrants may not be exercised for six months after their effective date of March 6, 2018. The warrants have an expiration date of five years after the initial six months have passed. The initially recorded fair value of these warrants was $270,175. As of December 31, 2018, the fair value of these warrants was $57,895, recorded as a derivative liability. The difference in value is recorded as a change in the fair value of derivative.

(5) On March 16, 2018, per the terms of the Advisor Agreement (see Note 9), the Company issued warrants at $.05 to purchase 6,666,666 shares of common stock. The warrants have an expiration date of March 16, 2021. The initially recorded fair value of these warrants was $87,933. As of December 31, 2018, the fair value of these warrants was $9,800, recorded as a derivative liability. The difference in value is recorded as a change in the fair value of derivative.

(6) On August 21, 2018, pursuant to the August 21, 2018 convertible promissory note (see Note 6), the Company issued warrants at $.06 to purchase 5,000,000 shares of common stock. The warrants may not be exercised for six months after their effective date of August 21, 2018 and they have an expiration date of five years after the initial six months have passed. The initially recorded fair value of these warrants was $23,050. As of December 31, 2018, the fair value of these warrants was $8,400, recorded as a derivative liability. The difference in value is recorded as a change in the fair value of derivative.

2016 Equity Incentive Plan

Effective September 13, 2016, the Company adopted the 2016 Equity Incentive Plan (the "2016 Plan") to provide an incentive to our employees, consultants, officers and directors who are responsible for or contribute to our long-range success. A total of 3,300,000 shares of our common stock were originally reserved for the implementation of the 2016 Plan, either through the issuance of incentive stock options, non-qualified stock options, stock appreciation rights, restricted awards, or restricted stock units. Whenever practical, the 2016 Plan is to be administered by a committee of not less than two members of the Board of Directors appointed by the full Board, and the 2016 Plan has a term of ten years, unless sooner terminated by the Board. On January 3, 2018, the Board amended the Company’s 2016 Equity Incentive Plan by increasing the authorized number of shares available under the plan by 30,000,000. As of December 31, 2018, 15,145,000 shares of common stock remain available for issuance under the 2016 Plan.

Effective September 13, 2016, pursuant to his employment agreement, the Company entered into a Restricted Stock Unit (“RSU”) Agreement with Mr. Read which granted him 500,000 RSUs pursuant to the 2016 Plan. The RSUs were to vest in three approximately equal increments with the first tranche being fully vested on the grant date and the remaining tranches vesting on the first-year and second-year anniversaries of the grant date. The fair value of the award was calculated based on the price of the common stock on the grant date and was to be expensed over the vesting period. Effective January 31, 2017, Mr. Read’s former employment agreement was terminated and the RSUs became fully vested. The Company recorded $0 and $128,695 in expense related to this grant during the years ended December 31, 2018 and 2017, respectively.

On January 20, 2017, the Company granted options to purchase 1,655,000 shares of its common stock at $.50 to employees including a total of 800,000 options to its then Chief Executive Officer and Chief Financial Officer per the 2016 Plan. The shares will vest based on months of service as of the grant date. Employees that had worked for twelve months or more as of the grant date had one-third of their options vested as of grant date. All other employees received pro-rata vesting for the portion of a year that they had worked. The remaining options will equally vest on the 1^st and 2^nd anniversary of the grant date. The Company recorded $291,102 and $483,884 in expense related to this grant during the years ended December 31, 2018 and 2017, respectively.

On January 3, 2018, as part of an oral employment agreement with the Company’s Chief Executive Officer, the Company granted Mr. Read 15,000,000 stock options of which 5,000,000 vested on the grant date, 5,000,000 will vest one-year from the grant date, and 5,000,000 will vest two years from the grant date subject to continued employment with the Company. The Company recorded $292,200 in expense related to this grant during the year ended December 31, 2018.

On January 22, 2018, the Company granted board member Gary Smith 1,000,000 stock options under the 2016 Plan, exercisable at $.03 per share, vesting quarterly over one year beginning in three months subject to continued service as a director on each applicable vesting date. The Company recorded $26,094 in expense related to this grant during the year ended December 31, 2018.